By Bear Fight:

Investors have flocked to high yielding securities including mortgage REITs due to the Federal Reserve's interest rate policy. In a search for yield investors should remain cautious on mortgage REITs due to rising prepayment risks.

Mortgage refinancing damage securities that trade for more than face value by returning principal faster at par and curbing interest. Agency mortgage REITs including Annaly Capital Management (NLY) and American Capital Agency (AGNC) have accumulated securities above par. According to Barclays Capital, the expansion of the Home Affordable Refinance Program urged by President Barack Obama is set to boost speeds by 1 or 2 percentage points each month.

At current mortgage rates, about 95 percent of the $2.8 trillion of 30-year loans packaged into Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) securities stand to gain from refinancing based on typical closing costs, according to JPMorgan analysts led by Brian Ye.

Agency mortgage REIT investors should


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